The health of the $7 trillion U.S. ETF remains strong, with many advisors and investors pairing ETFs with other investments and new entrants joining the market. BlackRock remains the industry leader and has expanded its lineup with innovative strategies in 2023. Dominik Rohe, head of BlackRock’s Americas ETF and Index Investments business, spoke with VettaFi from BlackRock’s offices in an exclusive interview. All data was as of the end of October 2023. With so much ground covered, we are publishing two articles. Read part one on this website.
VettaFi: Can you talk about how BlackRock expanded its ETF product lineup thus far in 2023?
Rohe: Innovation is always a focus area for us and we are constantly looking for ways to be better. Today, we are a leader in ETFs, with 400+ ETFs in the U.S.. Our goal is to offer the most innovative and comprehensive product platform — one that’s for any type of investor in any type of market environment. We’re committed to providing investors access to nearly every corner of the market. We want to help clients achieve better outcomes as they build their investment portfolios.
When we put our pipeline together, we spend a lot of time thinking about our clients’ needs. Our goal is to build differentiated, value-add products that address our clients’ challenges. We want to empower a wider audience to access the market through ETFs, delivering more low cost and tax-efficient solutions.
This year, one of these segments is active ETFs. There has been a convergence between active and index investing strategies as asset managers look to wrap active and other nontraditional index exposures within ETFs. This results in new, more complex products being launched in the market. We’ve meaningfully accelerated our 2023 active ETF pipeline and have launched 18 products this year.
VettaFi: Can you review some of the new product suites?
Rohe: In May, we launched the BlackRock Flexible Income ETF (BINC), the first ETF managed by BlackRock’s Rick Rieder, combining our expertise in ETFs with a world-class portfolio manager to meet our clients’ evolving needs. What is unique about BINC is that it is specifically designed to sit alongside core bond exposures. This allows advisors to customize how much yield enhancement they want while staying diversified, complementing their core bond holdings. Since inception, the fund has already reached $173 million in AUM.
In addition, we introduced BlackRock’s first suite of buffer ETFs in June: the iShares Large Cap Deep Buffer ETF (IVVB) and the iShares Large Cap Moderate Buffer ETF (IVVM). Unlike other buffer products, these have been specifically designed as buy-and-hold strategies that give investors exposure to the returns of the S&P 500 while providing a targeted level of downside protection against market drawdowns. Key to that is their quarterly reset, rather than annual. That allows the funds to more frequently adjust their buffer ranges to reflect prevailing market levels.
Lastly, in October, we launched the industry’s only suite of target date ETFs. The iShares LifePath Target Date ETFs are specifically designed for the individual investor. They provide millions of Americans with a simple, affordable, and tax-efficient way to save and invest for retirement. This suite of funds can help investors in many ways. This includes those who want to do more but don’t have access to a workplace retirement plan, those who are looking to bolster their planning by complementing an existing 401(k), and those who want to roll out of a 401(k) plan into an IRA with a familiar, time-tested strategy and investment choice. (Editor’s note: The iShares LifePath Target Date 2045 ETF (ITDE) is an example.
VettaFi Let’s look ahead to 2024. What segments of the ETF market are you excited about?
Rohe: I am incredibly excited to drive our ETF platform forward by innovating to address our clients’ challenges and reach more and more investors. This includes expanding into new client and product segments in areas like active ETFs, model portfolios, and digital wealth.
Active ETFs are a growing part of the ETF landscape. They make up 38% of all ETFs in the U.S. and representing $101 billion in AUM. Lines are being blurred between active and index. ETFs are no longer simply the domain of low cost indexes or transparent rules-based investing. They’re converging to become a technology to generate active return.
We are focused on expanding our active ETF lineup from specialized exposures to active building blocks for the core of investor’s portfolios. iShares launched our first active ETF in 2013, the BlackRock Short Duration Bond ETF (NEAR). Since then, we have accelerated innovation to 36 active ETFs. This spans alpha-seeking ETFs like BINC and outcome ETFs that seek to generate higher income or better protection using options like our buffered ETFs or the BlackRock Advantage Large Cap Income ETF (BALI). In addition, we have our goals-based ETFs that seek to deliver a model portfolio simply and efficiently, like our LifePath Target Date ETFs.
VettaFi: Can you talk more about models and digital wealth impacting the ETF landscape?
Rohe: With more than half of all wealth assets now in fee-based model portfolios, they’re are growing at 15%. ETFs are playing a central role as clients’ needs are shifting to ETFs as the vehicle of choice in models. In the U.S., we expect total assets in managed models will more than double from $4.5 trillion today to over $10 trillion by 2027.
As fiduciary wealth management becomes predominant, managed model portfolios are the main way wealth managers scale their practices, ensuring a more consistent investment experience. As managed models grow, we believe ETFs will also grow well beyond the core.
Meanwhile, commission-free trading combined with the growth of digital platforms and innovation in technologies is making investing more accessible and affordable, with ETFs as the vehicle of choice.
The $12 trillion U.S. digital wealth market has become the largest and fastest-growing channel in U.S. This is driven by individual investors leveraging these platforms as a key entry point to the market. In the U.S., more than 40 million new investment accounts have opened since 2020. These self-directed investors feel empowered by the simplicity of digital investing platforms and the convenience and access of ETFs.
Plus, we want individuals to start their investing journey earlier and grow their portfolios over time. We are seeing more and more end investors educating themselves about markets and investing. We see this as an opportunity to meet them where they are with our education, tools, and messaging.
With the acceleration of individual investor participation has come an increased focus on end investors’ needs and an emphasis on putting these needs at the forefront. Doing this has led to launching innovative products with the end investor in mind, like the iShares LifePath Target Date ETFs. We are also partnering with platforms like Fidelity, eToro, and Public to expand financial education and access to ETF investors.
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